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G.R. NO. 155173, November 23, 2004
Parks v. Province of Tarlac, 49 Phil. 142 (1927)
A. Facts
Origins of the controversy can be traced to the Letter of Intent (LOI) executed by
bothparties, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on
behalf of its affiliatesand other qualified entities, including Petitioner Luzon
Continental Land Corporation (LCLC) --agreed to purchase the cement business of
Respondent Continental Cement Corporation (CCC).Both parties entered into a
Sale and Purchase Agreement (SPA). At the time of the foregoingtransactions,
petitioners were well aware that CCC had a case pending with the Supreme
Court.In anticipation of the liability that the High Tribunal might adjudge against
CCC, the parties,under Clause 2 (c) of the SPA, allegedly agreed to retain from the
purchase price a portion of thecontract price in the amount of P117,020,846.84 -the equivalent of US$2,799,140. This amountwas to be deposited in an interestbearing account in the First National City Bank of New York(Citibank) for
payment to APT, the petitioner in GR No. 119712. However, petitioners
allegedlyrefused to apply the sum to the payment to APT, despite the subsequent
finality of the Decision infavor of the latter and the repeated instructions of
Respondent CCC. Fearful that nonpayment toAPT would result in the foreclosure,
not just of its properties covered by the SPA with Lafarge but of several other
properties as well, CCC filed before the Regional Trial Court a "Complaint
withApplication for Preliminary Attachment" against petitioners. The Complaint
prayed, that petitionersbe directed to pay the "APT Retained Amount" referred to
in Clause 2 (c) of the SPA.

B. Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed
petitioners counterclaims for several reasons, among which were the following: a)
the counterclaims against Respondents Lim and Mariano were not compulsory; b)
the ruling in Sapugay was not applicable; and c) petitioners Answer with
Counterclaims violated procedural rules on the proper joinder of causes of action.
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in
an Amended Order dated September 3, 2002 -- admitted some errors in its May 22,
2002 Order, particularly in its pronouncement that their counterclaim had been
pleaded against Lim and Mariano only. However, the RTC clarified that it was
dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano,
even if it included CCC.
Hence this Petition.
C. CA Resolution
LAFARGE elevated the matter to CA.
1. LAFARGE to avoid being in default and without prejudice to the outcome of
their appeal, filed Answer and Compulsory Counterclaims ad Cautelam before
the trial court in Civil Case No. Q-00-41103 (issued for them to pay APT
Retained Amount).
2. 2. Denied the allegations in the Complaint.
3. They prayed -- by way of compulsory counterclaims against CONTINENTAL,
its majority stockholder and president Gregory T. Lim, and its corporate
secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each
as moral damages, and (d) P5,000,000 each as attorneys fees plus costs of suit.
4. Prayed that both Lim and Mariano be held jointly and solidarily liable with
5. 4. On behalf of Lim and Mariano, CONTINENTAL moved to dismiss
petitioners compulsory counterclaims on grounds that essentially constituted
the very issues for resolution in the instant Petition.

1. Whether or not the RTC gravely erred in refusing to rule that Respondent CCC
has nopersonality to move to dismiss petitioners' compulsory counterclaims on
Respondents Limand Mariano's behalf.
2. Whether or not the RTC gravely erred in ruling.
1. Petitioners' Counterclaims Compulsory
The procedural rules are founded on practicality andconvenience. They are meant
to discourage duplicity and multiplicity of suits. This objectiveis negated by
insisting -- as the court a quo has done -- that the compulsory counterclaimfor
damages be dismissed, only to have it possibly re-filed in a separate proceeding.
Moreimportant, as we have stated earlier, Respondents Lim and Mariano are real
parties ininterest to the compulsory counterclaim; it is imperative that they be
joined therein.Section 7 of Rule 3 provides:"Compulsory joinder of indispensable

Parties in interest without whom no finaldetermination can be had of an action

shall be joined either as plaintiffs or defendants."Moreover, in joining Lim and
Mariano in the compulsory counterclaim, petitioners arebeing consistent with the
solidary nature of the liability alleged therein.
2. The Trial Court is hereby ordered to take cognizance of the counterclaims
pleaded inpetitioners' Answer with Compulsory Counterclaims and to cause the
service of summonson Respondents Gregory T. Lim and Anthony A. Mariano. The
ambiguity in petitioners'counterclaims notwithstanding, respondents' liability, if
proven, is solidary. Thischaracterization finds basis in Article 1207 of the Civil
Code, which provides that obligationsare generally considered joint, except when
otherwise expressly stated or when the law orthe nature of the obligation requires
solidarity. However, obligations arising from tort are,by their nature, always

Sapugay v. Court of Appeals

Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present case.
In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an
action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint
arose from the supposed failure of the couple to keep their end of their Dealership
Agreement. In their Answer with Counterclaim, petitioners alleged that after
incurring expenses in anticipation of the Dealership Agreement, they requested the
plaintiff to allow them to get gas, but that it had refused. It claimed that they still
had to post a surety bond which, initially fixed at P200,000, was later raised
to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies
required a copy of the Dealership Agreement, which respondent continued to
withhold from them. Later, petitioners discovered that respondent and its manager,
Ricardo P. Cardenas, had intended all along to award the dealership to Island Air
Product Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines
and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that
judgment be rendered, holding both jointly and severally liable for pre-operation
expenses, rental, storage, guarding fees, and unrealized profit including damages.
After both Mobil and Cardenas failed to respond to their Answer to the
Counterclaim, petitioners filed a Motion to Declare Plaintiff and its Manager
Ricardo P. Cardenas in Default on Defendants Counterclaim.
Among the issues raised in Sapugay was whether Cardenas, who was not a
party to the original action, might nevertheless be impleaded in the counterclaim.
We disposed of this issue as follows:
A counterclaim is defined as any claim for money or other relief which a defending
party may have against an opposing party. However, the general rule that a
defendant cannot by a counterclaim bring into the action any claim against persons
other than the plaintiff admits of an exception under Section 14, Rule 6 which
provides that when the presence of parties other than those to the original action is
required for the granting of complete relief in the determination of a counterclaim
or cross-claim, the court shall order them to be brought in as defendants, if
jurisdiction over them can be obtained. The inclusion, therefore, of Cardenas in
petitioners counterclaim is sanctioned by the rules.

The prerogative of bringing in new parties to the action at any stage before
judgment is intended to accord complete relief to all of them in a single action and
to avert a duplicity and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new
parties cannot be included in a counterclaim, except when no complete relief can
be had. They add that [i]n the present case, Messrs. Lim and Mariano are not
necessary for petitioners to obtain complete relief from Respondent CCC as
plaintiff in the lower court. This is because Respondent CCC as a corporation with
a separate [legal personality] has the juridical capacity to indemnify petitioners
even without Messrs. Lim and Mariano.
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas
in Sapugay or Lim and Mariano in the instant case -- is not premised on the
assumption that the plaintiff corporation does not have the financial ability to
answer for damages, such that it has to share its liability with individual
defendants. Rather, such inclusion is based on the allegations of fraud and bad faith
on the part of the corporate officer or stockholder. These allegations may warrant
the piercing of the veil of corporate fiction, so that the said individual may not seek
refuge therein, but may be held individually and personally liable for his or her
In Tramat Mercantile v. Court of Appeals, the Court held that generally, it
should only be the corporation that could properly be held liable. However,
circumstances may warrant the inclusion of the personal liability of a corporate
director, trustee, or officer, if the said individual is found guilty of bad faith or
gross negligence in directing corporate affairs.
Remo Jr. v. IAC has stressed that while a corporation is an entity separate and
distinct from its stockholders, the corporate fiction may be disregarded if used to
defeat public convenience, justify a wrong, protect fraud, or defend crime. In these
instances, the law will regard the corporation as an association of persons, or in
case of two corporations, will merge them into one. Thus, there is no debate on
whether, in alleging bad faith on the part of Lim and Mariano the counterclaims
had in effect made them indispensable parties thereto; based on the alleged facts,
both are clearly parties in interest to the counterclaim.
Respondents further assert that Messrs. Lim and Mariano cannot be held
personally liable [because their assailed acts] are within the powers granted to
them by the proper board resolutions; therefore, it is not a personal decision but
rather that of the corporation as represented by its board of directors. The
foregoing assertion, however, is a matter of defense that should be threshed out

during the trial; whether or not fraud is extant under the circumstances is an issue
that must be established by convincing evidence.
Suability and liability are two distinct matters. While the Court does rule that
the counterclaims against Respondent CCCs president and manager may be
properly filed, the determination of whether both can in fact be held jointly and
severally liable with respondent corporation is entirely another issue that should be
ruled upon by the trial court.
However, while a compulsory counterclaim may implead persons not parties to
the original complaint, the general rule -- a defendant in a compulsory
counterclaim need not file any responsive pleading, as it is deemed to have adopted
the allegations in the complaint as its answer -- does not apply. The filing of a
responsive pleading is deemed a voluntary submission to the jurisdiction of the
court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot
be considered to have automatically and unknowingly submitted to the jurisdiction
of the court. A contrary ruling would result in mischievous consequences whereby
a party may be indiscriminately impleaded as a defendant in a compulsory
counterclaim; and judgment rendered against it without its knowledge, much less
participation in the proceedings, in blatant disregard of rudimentary due process
The correct procedure in instances such as this is for the trial court, per Section
12 of Rule 6 of the Rules of Court, to order [such impleaded parties] to be brought
in as defendants, if jurisdiction over them can be obtained, by directing that
summons be served on them. In this manner, they can be properly appraised of and
answer the charges against them. Only upon service of summons can the trial court
obtain jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim,
but he did not file any responsive pleading to the counterclaim leveled against him.
Nevertheless, the Court gave due consideration to certain factual circumstances,
particularly the trial courts treatment of the Complaint as the Answer of Cardenas
to the compulsory counterclaim and of his seeming acquiescence thereto, as
evidenced by his failure to make any objection despite his active participation in
the proceedings. It was held thus:
It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim
against him on the ground of lack of jurisdiction. While it is a settled rule that the
issue of jurisdiction may be raised even for the first time on appeal, this does not
obtain in the instant case. Although it was only Mobil which filed an opposition to
the motion to declare in default, the fact that the trial court denied said motion,

both as to Mobil and Cardenas on the ground that Mobils complaint should be
considered as the answer to petitioners compulsory counterclaim, leads us to the
inescapable conclusion that the trial court treated the opposition as having been
filed in behalf of both Mobil and Cardenas and that the latter had adopted as his
answer the allegations raised in the complaint of Mobil. Obviously, it was this
ratiocination which led the trial court to deny the motion to declare Mobil and
Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and
the proceedings therein as he testified and was present during trial, not to speak of
the fact that as manager of Mobil he would necessarily be interested in the case and
could readily have access to the records and the pleadings filed therein.
By adopting as his answer the allegations in the complaint which seeks affirmative
relief, Cardenas is deemed to have recognized the jurisdiction of the trial court
over his person and submitted thereto. He may not now be heard to repudiate or
question that jurisdiction.
Such factual circumstances are unavailing in the instant case. The records do
not show that Respondents Lim and Mariano are either aware of the counterclaims
filed against them, or that they have actively participated in the proceedings
involving them. Further, in dismissing the counterclaims against the individual
respondents, the court a quo -- unlike in Sapugay -- cannot be said to have treated
Respondent CCCs Motion to Dismiss as having been filed on their behalf.